FINANCIAL ACCOUNTING NOVEMBER 2016 - CPA SOLUTION|REVISION KITS|KASNEB

QUESTION 1a

Q Income statement for the year ended 30 June 2016.

A

Solution

Furaha Ltd Income statement for the year ended 30th June 2016
Sales Less: Cost of sales Purchases Opening inventory Less: Closing inventory Gross profit Add: other incomes Discount received Total incomes Less: Expenses Administrative expenses(5,300 - 500) Insurance 2,100 / 3 Increase in allowance for doubtful Debts 5% (14,640 - 640) - 610 Discount allowed Depreciation Machinery 10% * 18,000 Furniture 20% (6,000 - 2,160) Bad debts Selling and distribution expenses Debenture interest (8% × 2,000) Net profit Less: preference Dividend (10% × 20,000) Interim Final Less: Ordinary dividend Interim Final 6% x 30,000 Retained profit for the year Add: Retained earnings balance b/d Retained earnings Balance c/d	Sh 000 26,400 68,000 (21,600) 4,800 700 90 1,350 1,800 768 640 2,750 160 800 1,200 1,200 1,800	Sh 000 91,000 (72,800) 18,200 1,100 19,300 (13,058) 6,242 (2,000) (3,000) 1,242 12,330 13,572

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QUESTION 1b

Q Statement of financial position as at 30 June 2016.

A

Solution

Furaha LTD
Statement of financial position For the year ended 31 June 2016

Assets
Non-current assets
Free hold property
Machinery 18,000 - (5,400 + 1,800)
Furniture 6,000 - (2,160 + 768)
Current assets
Inventory
Trade receivables (14,640 - 640 - 700)
Bank balance and cash in hand
Prepaid insurance
Prepaid administrative expenses
Total assets
Equity and liabilities
Capital and reserves
Ordinary share capital
10% preference share capital
Share premium
Retained Earnings
Non-current liabilities
8% debentures
Current liabilities
Trade payables
Find preference divided
Find ordinary divided
Total equity and liabilities

Sh 000

28,000
10,800
3,072

21,600
13,300
2,100
1,400
500
80,772

30,000
20,000
5,000
13,572

2,000

7,200
1,200
1,800
80,772

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QUESTION 2a

Q Give two reasons why a manufacturing entity might need to determine manufacturing profit.

A

Solution

Reasons for Determining Manufacturing Profit

Determining manufacturing profit is crucial for a manufacturing entity for several reasons, as it provides valuable insights into the financial health and efficiency of the operation.

Reasons why a manufacturing entity might need to determine manufacturing profit:

Performance Evaluation:
- Internal Assessment
Cost Control:
- Identifying Cost Drivers
Strategic Decision-Making:
- Product Mix
Pricing Strategy:
- Setting Competitive Prices
Investor Relations:
- Financial Reporting
Resource Allocation:
- Optimizing Resources
Budgeting and Planning:
- Financial Planning
Continuous Improvement:
- Identifying Inefficiencies
Risk Management:
- Identifying Vulnerabilities
Compliance and Reporting:
- Financial Regulations

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QUESTION 2(b)

Q (i) The bank statement balance as at 30 June 20 16.

(ii) The updated cash book as at 30 June 2016.

(iii) Bank reconciliation statement.

A

Solution

(i) The bank statement balance as at 30 June 20 16.

Bank statement as at 30th June 2016
Bank balance as per cash book Add: Unpresented cheques Cheque paid twice Direct credit (Jamii ltd) Less: Bank commission Bank interest Dishonest cheque Uncredited cheques Standing order Transportation error (324,000 - 234,000) Balance as per the bank statement	Sh 000 84,500 65,000 285,000 24,500 18,100 46,500 352,500 98,000 90,000	Sh 000 1,254,800 434,500 1,689,300 (629,600) 1,059,700

(ii) The updated cash book as at 30 June 2016.

Updated cash book
Balance b/d Cheque paid twice Direct credit	Sh 000 1,254,800 65,000 285,000 1,604,800	Transposition Bank commission Dishonored cheque Standing order Bank interest balance c/d	Sh 000 90,000 24,500 46,500 98,000 18,100 1,327,700 1,604,800

(iii) Bank reconciliation statement.

Bank reconciliation statement
Balance as per the update cash book Add: unpresented cheques Less: uncredited cheques Balance as per the bank statement	Sh 000 1,327,700 84,500 (352,500) 1,059,700

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QUESTION 3(a)

Q Highlight five roles of the accountant general in your country.

A

Solution

Roles of the Accountant General

Financial Management and Accounting:
- Budget Implementation
- Accounting Standards
- Financial Reporting

Treasury Management:

Cash Management
Debt Management
Investment Management

Internal Control and Audit:

Internal Audit
Risk Management
Internal Controls

Financial Planning and Policy Formulation:

Strategic Financial Planning
Policy Advice
Fiscal Policy

Accountability and Transparency:

Public Accountability
Audited Financial Statements
Compliance Monitoring

Technology and System Integration:

Financial Systems
Data Security

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QUESTION 3(b)

Q Statement of cash flow in accordance with International Accounting Standard (IAS) 7 "Statement of cash flows" for the year ended 31 October 2016.

A

Solution

Workings

Cash and cash equivalent
Short term investment Cash in hand Bank overdraft	2015 Sh million - 1 (98) (97)	2016 Sh million 50 2 (85) (33)

Property plant and equipment a/c
Balance b/d Revaluation Cash	Sh million 595 9 201 805	Disposal Balance c/d	Sh million 85 720 805

Provision for depreciation of PPE
Disposal Balance c/d	Sh million 40 340 380	Balance b/d Depreciation	Sh million 290 90 380

Disposal on fixture a/c
Cost	Sh million 85 85	Accumulated Depreciation Sales proceeds Loss on disposal	Sh million 40 32 13 85

Tahidi Ltd Statement of cash flows for the year ended 31 Oct 2016
Cash flows from operating activities Profit before tax Adjustments Depreciation Interest income Interest paid Loss on disposal of fixture & fittings (45m-32m) Gain on disposal of investment Working capital changes Increase in inventories Increase in receivables Increase in payables Gross cash flows from operating activities. Less tax paid Net cash flows from operating activities Cash flows from investing activities Proceeds from sale of fixture & fittings Proceeds from sale of investments interest income Purchase of property plant and equipment Purchase of intangible assets Net cash flows from investing activities cash flows from financing activities Issue of shares (5mx100) Issue of shares at a premium(5x2) loan borrowed Dividend paid Interest paid Net cash flows from financing activities Net changes in cash and cash equivalent (A + B + C) Add: beginning cash and cash equivalent Ending cash and cash equivalent	Sh million (30 - 25) (150 - 102) (390 - 315) (127 - 119) (110 + 140 - 120) (80 + 100 - 100)	Sh million 300 90 (25) 75 13 (5) (48) (75) 8 333 (130) 203(A) 32 30 25 (201) (50) (164)(B) 50 10 120 (80) (75) 25(C) 64 (97) (33)

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QUESTION 4(a)

Q Bar income statement for the year ended 30 September 2016

A

Solution

Tegemeo club Bar income statement for the year ended 30/9/2016
Bar sales Less: Opening inventory (852-58) Add: Purchases Less: Closing inventory Bar profit	Sh 000 794 8,258 (852)	Sh 000 10,400 (8,200) 2,200

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QUESTION 4(b)

Q Income and expenditure account for the year ended 30 September 2016

A

Solution

Tegemeo club Income and expenditure account for the year ended 30/Sept/2016
Incomes Bar profit subscription Joining fees Interest on loan stock Golf-tournament profit (620 - 228) Total income Less: Expenses Rent and rates (460 + 70 - 40 + 38 - 42) Electricity (220 + 24 - 28) Depreciation: Furniture (12.5% x 1008) Machine Loss on disposal of machine Salaries and wages Stationary General expenses Ground expenses Surplus	Sh'000' 486 216 126 99 12 1,482 150 204 112	Sh'000' 2,200 774 112 70 392 3,548 (2,887) 661

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QUESTION 4(c)

Q Statement of financial position as at 30 September 2016

A

Solution

Subscription a/c
Arrears Balance b/d I & E Advance Balance c/d	Sh 000 120 774 - 894	Advance bal b/d Subscription received (bank) Arrears Balance c/d	Sh 000 - 824 70 894

Disposal of Machine
Cost	Sh 000 40 40	Acc depreciation Sales proceeds Loss	Sh 000 - 28 12 40

Depreciation of mowing machine
Old (400 - 40) 20% × 1 New (152 + 28) 20% × 9 / 12	72 27 99

Accumulated fund
Assets Furniture Machine Subscription in arrears Prepaid rates Inventory Bank Cash Less: liabilities Accrued rent 40 Accrued electricity 28 Accumulated fund	Sh 000 1,008 400 120 794 38 1,994 42 4,396 (68) 4,328

Tegemeo club Statement of financial position as at 30 Sept 2016
Assets Non-Current Assets Furniture (1,008 - 126) Mowing machine(400 + 180 - 40) - 99 loan stock Current assets Inventory Subscription in arrears Bank Balance Cash balance Prepaid rates Total Assets Financed by: Accumulated fund 4,328 Add: surplus 661 Current liabilities Accrued rent Accrued electricity	Sh 000 882 441 2,000 852 70 724 72 42 5,083 4,989 70 24 5,083

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QUESTION 5(a)

Q Distinguish between partners' capital accounts and partners' current accounts.

A

Solution

Distinction between Partners' Capital Accounts and Current Accounts

In a partnership, both partners' capital accounts and partners' current accounts are used to track the financial interests and transactions of each partner. However, they serve different purposes and have distinct characteristics. Below is a distinction between partners' capital accounts and partners' current accounts:

1. Partners' Capital Accounts:

Nature: Capital accounts represent the long-term equity or ownership stake of each partner.
Initial Contributions: Partners' capital accounts are initially credited with the partners' contributions to the partnership.
Changes in Capital: Capital accounts are adjusted for various transactions affecting partners' equity.
Permanence: Capital accounts are considered permanent accounts, carried forward from one period to the next.
Used for Ownership Percentage: Capital accounts determine each partner's ownership percentage.

2. Partners' Current Accounts:

Nature: Current accounts represent short-term financial transactions between partners and the partnership.
Transactions Recorded: Current accounts record day-to-day transactions like withdrawals, additional investments, etc.
Temporary Nature: Current accounts are temporary and are closed at the end of each accounting period.
Reflects Short-Term Transactions: The balance in a current account reflects short-term financial activities.
Not Used for Ownership Percentage: Current accounts are not used to determine ownership percentages.

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QUESTION 5(b)

Q Many countries have adopted and implemented accrual accounting as per the International Public Sector Accounting Standards (IPSAS).
Outline four principles of accrual accounting.

A

Solution

Principles of Accrual Accounting (IPSAS)

Accrual accounting is a method of accounting that records financial transactions when they occur, regardless of when the cash is exchanged. This approach provides a more comprehensive and accurate picture of an entity's financial performance and position compared to cash-based accounting. The International Public Sector Accounting Standards (IPSAS) establish the principles of accrual accounting for public sector entities. Let's outline the principles of accrual accounting:

Revenue Recognition:
- Principle: Recognize revenue when it is earned.
- Application: Revenue is recognized when goods are delivered or services are rendered.
Expense Recognition:
- Principle: Recognize expenses when they are incurred.
- Application: Expenses are recognized as they contribute to revenue generation.
Matching Principle:
- Principle: Match expenses with the revenues they help generate.
- Application: Recognize expenses in the same period as the associated revenue.
Accruals and Deferrals:
- Principle: Account for transactions in the periods in which they occur.
- Application: Use accruals and deferrals to align recognition with economic events.
Consistency:
- Principle: Apply accounting policies consistently.
- Application: Adopt and consistently apply accounting policies; disclose changes.
Materiality:
- Principle: Consider materiality in decision-making.
- Application: Focus on significant transactions and events.
Going Concern:
- Principle: Prepare statements assuming the entity will continue operations.
- Application: Accrue future revenues and expenses unless evidence suggests otherwise.
Full Disclosure:
- Principle: Provide all relevant information.
- Application: Disclose accounting policies, estimates, and uncertainties.
Substance over Form:
- Principle: Focus on economic substance over legal form.
- Application: Consider the economic reality of transactions and events.

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QUESTION 5(c)

Q Explain four elements of manufacturing costs.

A

Solution

Elements of Manufacturing Costs

Direct Materials:
- Definition: Direct materials are the raw materials and components directly incorporated into the finished product.
- Examples: Flour, sugar, eggs, etc., for a bakery producing a specific type of cake.
- Cost Measurement: Includes the purchase cost and additional costs associated with acquiring, transporting, and storing materials.

Direct Labor:

Definition: Direct labor refers to the cost of labor directly involved in the manufacturing process.
Examples: Wages of assembly line workers, machine operators, etc., in a manufacturing plant.
Cost Measurement: Measured based on actual hours worked and corresponding wage rates.

Manufacturing Overhead:

Definition: Manufacturing overhead comprises all indirect costs incurred during the manufacturing process.
Examples: Rent, utilities, maintenance, depreciation, and indirect labor costs.
Cost Measurement: Overhead costs are often allocated based on a predetermined rate, e.g., a percentage of direct labor costs or machine hours.

Other Indirect Costs:

Definition: This category includes additional indirect costs necessary for the production process.
Examples: Quality control expenses, inspection costs, tooling costs, and other miscellaneous overhead expenses.
Cost Measurement: Similar to manufacturing overhead, these costs may be allocated based on an appropriate basis.

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QUESTION 5(d)

Q Discuss four advantages of computerised accounting systems.

A

Solution

Advantages of Computerized Accounting Systems

Accuracy and Reduced Errors:
- Automation: Computerized systems automate calculations, reducing the risk of errors.
- Validation Rules: Include rules to ensure data accuracy and adherence to criteria.

Time Efficiency:

Faster Processing: Transactions are processed quickly, allowing for real-time updates.
Automated Reporting: Generation of financial reports is faster and more efficient.

Data Centralization:

Centralized Data Storage: All financial data is stored centrally for easy accessibility.
Consistency: Ensures data consistency across different modules and functions.

Improved Financial Analysis:

Real-Time Reporting: Enables quick generation of up-to-date financial reports.
Data Drill-Down: Allows users to drill down into detailed financial information for analysis.

Enhanced Security:

Access Controls: User access controls limit access to sensitive financial data.
Backup and Recovery: Regular automated backups ensure data security and facilitate recovery.

Audit Trail:

Transaction History: Maintains a detailed audit trail for tracking changes and ensuring accountability.
Compliance: Facilitates compliance with auditing and regulatory requirements.

Cost Savings:

Reduced Paper Usage: Reduces the need for paper-based record-keeping.
Efficiency Gains: Automation reduces time spent on manual tasks, leading to cost savings.

Scalability:

Adaptability: Easily adapts to the growing needs of the organization.
Integration: Supports seamless connectivity with other business systems.

Remote Access:

Cloud-Based Solutions: Allows remote access to financial data.
Collaboration: Facilitates collaboration among team members in various locations.

Customization:

Tailored Reporting: Users can customize reports based on specific business requirements.
Module Integration: Modules can be selected and integrated based on organizational needs.

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CPA
Foundation Leval
Financial Accounting November 2016
Suggested solutions

Solution

Solution

Solution

Reasons for Determining Manufacturing Profit

Reasons why a manufacturing entity might need to determine manufacturing profit:

Solution

(i) The bank statement balance as at 30 June 20 16.

(ii) The updated cash book as at 30 June 2016.

(iii) Bank reconciliation statement.

Solution

Roles of the Accountant General

Solution

Solution

Solution

Solution

Solution

Distinction between Partners' Capital Accounts and Current Accounts

1. Partners' Capital Accounts:

2. Partners' Current Accounts:

Solution

Principles of Accrual Accounting (IPSAS)

Solution

Elements of Manufacturing Costs

Solution

Advantages of Computerized Accounting Systems

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